The last 20 years have seen a greater focus on the non-financial aspects of business; be its social value, environment, CSR (Corporate Social Responsibility) or ESG (Environmental Social and Governance) agenda to create the triple bottom line. These have pushed organisations to a balanced approach to strategy, growth and investment and where financial value, whilst important, is now on a par with other factors.
In 2019, the UK Government set the ambition of achieving net-zero carbon by 2050. In doing so, many organisations recognised their role in influencing the emissions from their value chain with the rise in sustainability strategies and commitments among both public and private organisations alike.
An increase in healthy competition and awareness has driven both organisational ESG responsibilities and consumer demand factors. Coupled with policy and legislation, it is increasingly important to establish a clear process and mechanism for sustainability and carbon reporting. This is no longer a ‘nice to have’ but an expectation of business-as-usual within annual reports and audits.
By adopting an integrated approach to sustainability reporting, organisations provide a strategic picture that goes beyond compliance and connects environmental, social and governance issues. ETL encourages organisations to think beyond current reporting and be innovative, considering the relevant extended upstream and downstream value chain aspects of business operations to take account of all its environmental, social and economic impacts, both positive and negative.
Not only does sustainability reporting respond to industry policy, legislation and demands, but it also enables greater transparency in reporting, creating trust among stakeholders. There are a range of reporting methodologies being used across sectors available Scope 1, 2 and 3 emissions.1 Organisations must not let this deter them, but rather start somewhere to establish clear metrics/KPIs to successful report and benchmark across organisations within a sector.
This will require allocating responsibilities to data owners to pull together the relevant information for reporting. Additionally, within the past year, there has been a greater focus and understanding of supply chain processes and the significance of their environmental impact (Scope 3).
Furthermote, It is recommended for industries to move towards more standardised reporting frameworks. This will enable cross-sector benchmarking and enables easy identification of missing/inaccurate data. Within best practice, the reports will be audited to further strengthen the validity of the data.
ETL recognises that progress reporting is vital to maintain the momentum of an organisation’s sustainability programme, especially if there are opportunities to make the actions more ambitious or if progress is falling behind expectations and to provide feedback to stakeholders on progress. Consequently, reports must fulfil certain criteria across multiple factors to be accessible and effective, including:
- Context – the report needs to include information about “why?” so that decisions and actions can be under put in context and understood.
- Tone – the report needs to be tailored to the target audience and it needs to avoid overly technical terminology.
- Diversity – the report needs to include a diverse range of opinions, feedback and information across a range of departments to resonate with different audiences and stakeholders.
- Personal – rather than using generic language, telling stories and bringing in a diverse range of opinions will resonate with stakeholders and increase their buy-in and understanding of the progress.
- Honesty – achieving sustainability targets is a challenge and there will be areas where more progress has been made, but it is important to still acknowledge where improvements can be targeted – this provides transparency and honest dialogue that will also increase stakeholder buy-in.
- Culture – using the unique voice of the organisation to communicate progress is the most effective way to report.
Despite the growing focus on carbon, reports should acknowledge and measure ESG performance and connect the dots between business activities and delivery of social value to stakeholders and the wider community. Plus with increasing public interest, sustainability reporting avoids greenwashing by cementing progress backed by data and holds organisations to account for their sustainability performance and annual emissions.
The finance function still holds the keys to the shifting emphasis to the balanced scorecard. The key is data – data is the commodity that drives value in all decisions. Decisions need to be based upon sound underpinnings and whilst the pound, dollar or euro may now not be the only value measured, the skills of the finance function, competency with data and its evaluation, consideration of risk, the setting and measuring of merits, scenario planning and appreciation of governance, are key to supporting CSuite in developing the corporate narrative, strategy and investment choices.
At the same time, the finance function shoulders the corporate responsibility to provide robust disclosure. The world is developing comparable and commoditised “green” measures and just as accounting standards in the past have developed, consolidated and adapted to emerging corporate and world issues, so will environmental reporting standards.
By Paul Styler, director of Infrastructure Solutions at ETL